Hardly a day passes when the press does not report on a new merger or acquisition in the healthcare sector. Some of these are monumental in scope, but most relate to individual hospitals, facilities, or entities. The number of hospital and health system mergers and acquisitions continued their upward trend in the first quarter of 2017, with an eight percent increase from 25 to 27 transactions compared to the first quarter of 2016. This trend is likely to continue and is stimulated by health care reform that will likely result in more consolidation and integration among hospitals and physician practices. There are two common types of due diligence; financial and legal. However, the highly regulated nature of the health care industry requires a third type; regulatory due diligence to avoid discovering and having to make disclosures of regulatory violations and overpayments of millions of dollars.

Financial and Legal Due Diligence

Due diligence reviews generally focuses on financial accountability and legal liabilities. An independent accounting firm focuses on reviewing and evaluating the balance sheets, income statements, audit reports, and cash flow statements and projections in measuring financial viability. There are many very competent public accounting firms that specialize in this type of work. For legal due diligence, the focus is on examining the entity’s structure; business permits and/or approvals; employment and labor law compliance; environmental law approvals, permits and compliance; contractual rights and obligations; intellectual property rights and obligations; real property law compliance; securities and financing regulatory compliance; tax exposure risks; consumer protection law and exposure risks; and/or licenses; previous and/or current litigation; media reports; and external consultants and/or advisors. There are an abundant number of law firms that provide high quality services in this type of work. What is often missing is focusing on the potential health care regulatory and legal compliance issues.

Health Care Regulatory Due Diligence

In the health care sector, things are more complicated, wherein health care facilities are subject to a tremendous number of state and federal laws and regulations that govern how business must be conducted. As such, there are significant risks that a purchaser can inherit serious regulatory liabilities without checking to see how the entity is complying with these rules. With the right experts with experience in doing this kind of work, the time and costs for the due diligence review be only a small fraction of the costs of either a financial or legal review. The reason is simple: financial and legal due diligence involves detailed examination of a large volume of information. Regulatory compliance experts know exactly where to look for any weaknesses without having to do a “deep dive.” As such, it is difficult to imagine why a party looking to make an acquisition would not want a regulatory due diligence. High on the list for any reviews should be arrangements with referral sources—the highest enforcement priority of both the DOJ and OIG for many years—and review of the claims processing system and controls to ensure that there are not regulatory issues waiting to be discovered by CMS contractors or enforcement agencies. In virtually all cases, problems will be identified that in very few cases would interfere with the decision to acquire, but is very likely to not only avoid a future liability but puts on the table additional tools to improve the negotiation terms and conditions.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

By now every health care provider is aware of the need for an effective compliance program under direction and management by a compliance officer, as well as a privacy officer to ensure HIPAA compliance. It is common these days for organizations to have compliance and privacy officer vacancies as result of a retirement, termination, someone changing jobs, or any other of a dozen reasons. Sometimes it may have been triggered by an audit or investigation by the HHS Office of Inspector General (OIG), Department of Justice (DOJ), HHS Office for Civil Rights (OCR), or a CMS contractor. In other cases, a board or new executive leadership may wish to use proven experts to promote and/or elevate the programs to a higher level. Regardless of the reason, the departure of a long time incumbent creates a vacuum that needs to be filled quickly for day to day management and responding to emerging issues to avoid serious problems and potential liability. The worst time to have a vacancy is when entering the holiday season and the end of the calendar year. For a variety of reasons, it is a time when many problems and issues arise needing prompt attention.

Steve Forman, CPA, is an expert on the subject with over 25 years as a healthcare compliance officer and consultant, including serving on multiple occasions as an interim compliance officer. He notes that the sudden departure of a compliance or privacy officer makes the problem of finding someone properly qualified in a timely manner a serious issue. Confronted with a rapidly evolving regulatory and enforcement environment, health care organizations cannot afford to take the chance on having a gap in these positions. When such a gap occurs, engaging an expert on a short term engagement can hold the reigns of the program together, while a permanent replacement is found. Using a properly qualified outside expert presents a lot of advantages. They can bring the experience of having served in other organizations and dealing with many of the same issues already addressed by prior jobs. It is also important that they have not been invested in any prior decisions, nor have they been aligned with any parties in the organization. Most importantly, they bring “fresh eyes” to the program. They can provide objective assessment on the state of the compliance program, offer suggestions, and give guidance for improvements.

Suzanne Castaldo, JD, who specializes in providing interim compliance and privacy officers for healthcare clients, noted that clients to whom she has provided interim officers, usually take three to five months to find that hire a permanent replacement with necessary experience and qualifications. When they seek temporary officers, she provides experienced professionals with previous experience as a compliance or HIPAA privacy officer. Over the last 25 years, her firm has worked with over 3,000 health care organizations in building, evaluating, managing, and building compliance program that provide a unique level of knowledge and expertise. Using the right professional with a lot experience and technical skills can make significant improvements for any compliance program in a relatively short order.

Camella Boateng is another highly experience compliance professional who has served as an interim compliance and privacy officer for several organizations. She has found that organizations have a tendency to understate the needs in the vacant position. In every case where she has been called upon to fill a vacancy, she has encountered serious problems that were hidden or not recognized by the organization. In fact, these unattended problems often were the reason for the departure of the incumbent. As such, those seeking temporary compliance or privacy officers require more than someone just to monitor and manage day to day work. They should look to added benefits and services an outside expert can bring, including providing an independent assessment of the status of the compliance program and high-risk areas warranting attention. Before leaving the engagement they can develop a “road map” for the incoming compliance officer to follow. All this can result in developing comprehensive briefings for management and board on the state of the program

Lisa Shuman is a consultant that has served as an interim privacy officer for organizations. She observed that the work flow is different from that of a compliance officer. She has found from her experience that most engagements can be part time with much of the work done remotely. The first month usually involves focusing on reviewing adequacy of existing policies, procedures, controls, and training content. After that, the work focuses primarily on privacy violation investigations that arise, however, it is important that the interim privacy officer be available at any time to deal with issues

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Effective compliance programs require top-down commitment beginning at the Board level to oversee and support its implementation and operations. The Board should have a committee to do this. The OIG compliance guidance calls for a Board level committee to oversee the Compliance Program (CP). The HHS Inspector General, General Dan Levinson has noted that the best boards as those that are active, questioning, and exercise (constructive) skepticism in their oversight. He further stated that Boards have a duty to ask probing questions about the operation of the Compliance Program, including how the compliance reporting system works and what reports they can expect on the reporting of compliance issues. They have a duty to ask probing questions about the goals and objective of the compliance program. The problem for most Boards is to know what type of questions they should be asking. Compliance Officers should assist them with this problem; however they in turn should be prepared to provide full and complete answers to them. The OIG and American Health Lawyers Association developed specific suggested questions that Board’s should be asking about the compliance program that the compliance officer should be prepared to provide proper responses to them. They jointly produced “Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors” and “Corporate Responsibility and Health Care Quality (2007): A Resource for Health Care Boards of Directors.” The following are drawn from these advisory documents:

Does the compliance officer have sufficient authority to implement the program?

What are the resources necessary to properly implement operate the program?

Has compliance officer been given the sufficient resources to carry out the mission?

Have compliance-related responsibilities been delegated across all levels of management?

What evidence is there that all employees held equally accountable for compliance?

How has the code been incorporated into corporate policies across the organization?

What evidence is there that the code is understood and accepted across organization?

Has management widely publicized importance of the code to all of its employees?

Are there compliance-related policies that address operational compliance risk areas?

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

The OIG from its earliest compliance guidance documents has recommended the use of “[q]uestionnaires developed to solicit impressions of a broad cross section” of the workforce. Evaluating effectiveness through the use of questionnaires or surveys can measure the compliance culture and/or knowledge of the organization. Such surveying of employees are one of the two methods suggested for evidencing compliance program effectiveness by the HHS OIG in its Compliance Guidance for Hospitals and Supplemental Guidance for Hospitals. The agency noted that “as part of the review process, the compliance officer or reviewers should consider techniques such as…using questionnaires developed to solicit impressions of a broad cross-section of the hospital’s employees and staff.” It further reinforced this by stating it “recommends that organizations should evaluate all elements of a compliance program through “employee surveys.” The OIG also stated that “[t]he existence of benchmarks that demonstrate implementation and achievements are essential to any effective compliance program.”

Steve Forman, CPA, has 35 years experience as a compliance officer and health care compliance consultant. He has used compliance surveys for over 20 years to measure program effectiveness and has found them to be an extremely inexpensive method to provide great insight into the compliance program’s effectiveness. However, he notes that it is critical that the survey being used has been professional developed, as well as validated and tested over many organizations. In addition, it is necessary for employees to have confidence in the fact that their scoring will not be attached to them. This means that the survey needs to be independently administered that ensures the confidentiality and anonymity of participants. It is very useful for organizations gaining feedback from employees by querying them on their knowledge of the compliance program elements drawn from their general observations and personal experiences. Results from a survey can evidence employees’ knowledge; awareness and understanding of the compliance program are used to identify positives and weaknesses of the compliance program. It can provide empirical evidence of the advancement of program knowledge, understanding, and effectiveness.

Carrie Kusserow with 15 years experience as a compliance officer and consultant has found that reports of survey results can evidence both strengths in the compliance program, as well as areas opportunities for improvements in the Compliance Program. It is one way that compliance program effectiveness can be objectively measured with credible metric evidence. Using the same survey over time, permits measurements that can benchmark progress in Compliance Program development and in tracking improvements.

Al Bassett, JD, has assisted in building and evaluating compliance program effectiveness more than just about anyone in the country over the last 20 years. He has routinely employed employee surveys as a tool to obtain the most out of a compliance effectiveness review. He has found that a compliance knowledge survey parallels and reinforces his findings from document reviews, observation of program operations, and interviews of key staff. In addition, he has surveys administered to provide the foundation for focus group meetings. Findings from a survey can identify potential weakness, but does explain the “why” for the issue. He cautions that for reliable and credible result, the survey should be professionally developed and administers. From experience he notes that internally developed questionnaires naturally raise employee suspicion that the questions are being designed to bias the results in favor of the organization. There is also the concern that if administered internally, anonymity in responding to questions would be lost. Another issue is that the credibility of the results is not likely to provide convincing evidence to any outside authorities. A properly developed survey will also address a response-set bias, where respondents may always answering the questions as “yes” or “no”. It is therefore important to have a few reverse scored questions included.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.
Connect with Richard Kusserow on Google+ or LinkedIn.